Why Ethical Codes Crash and Burn

The attentive City audience knew something important was coming. Yet they also expected the usual Bank of England platitudes.

Instead Marc Carney who heads up the bank was brutally frank

“Capitalism is doomed if ethics vanish”Mr Carney told his London conference how banks have often developed codes of ethics or business principles but wondered

“Have their traders absorbed their meaning?”

Obviously he felt they had not. And he was right. For despite the many formal programmes and training courses companies use to bring their rules of correct behaviour to life, the true meaning of these requirements often escapes people. They simply don’t get them. Why?

I suggest there are three basic reasons to explain why codes crash and burn, failing to make the desired impact.

1 Not enough focus on purpose

2 Weak or no alignment between the Performance Management System and the company’s ethical code.

3 Not recognising & harnessing the benefits of Effective Teamwork

Not enough focus on purpose

Codes of ethics often come wrapped in fancy, multi-coloured booklets, headed by noble thoughts from the CEO or Chairman. But what are these costly tomes meant to achieve—what’s their real purpose?

Purpose” sounds intangible. It could imply all kinds of mind puzzles such as free will and destiny. Naturally such ruminations are doomed to lose the attention of most busy ethical leaders faster than a speeding bullet. More relevant is: Do these tomes provide meaning?Human beings constantly search for meaning. Codes of ethics therefore need to arise from a clearly-stated corporate purpose. Lacking an easily understood statement of purpose, stakeholders cannot make sense of a company’s code of ethics. It has to be well thought through and aligned to the firm’s ethical values and principles. Without these, they are unlikely to use the code to guide their daily actions. Action No 1: Make sure you have a clearly stated and easily understood purpose for your code and ensure that it helps people add meaning to what they do.

Weak or no alignment between the Performance Management System and the company’s ethical code

Employees of an organisation often come to accept its values, principles, and ethical codes make sense. Yet despite this, their behaviour does not reflect these. Several reasons may explain this.

Members of the top team may not fully realise what their own ethical code means. So they cannot convincingly explain it. Nor can they sound genuinely passionate about it. Without this emotional involvement they will not be able to model the right behaviour, showing what it look, feels and sounds like. Another reason is one or more of the senior leadership team proves to be ethically tone deaf. When this happens, the leadership simply does not recognise what’s expected of them. Putting it slightly differently, they have no “moral compass” to guide them or others. Perhaps the most common reason is the failure to align the company’s performance management system with its ethical code, values or principles. For example, employee behaviour tends to reflect how they perceive they’re being measured and judged. If they believe the ethical code is part of the measuring system they are more likely to absorb the meaning of the code. On the well-known management principle you get the behaviour that you reward, most performance management systems are noticeably devoid of any reference to ethics. Hardly surprising then employees feel ethics are more about company PR than daily practice. Action No 2: Build ethics into fabric of the performance management system; ensure employees come to realise failing to absorb the code is not merely risky, but potentially career limiting.

Not recognising & harnessing the benefits of Effective Teamwork

There is less enthusiasm for formal teamwork development in business than in the past. This is unfortunate since it closes off a useful way of spreading ethical codes, making sure their meaning becomes fully absorbed. In a well-designed and delivered teamwork development programme purpose, ethics and values surface naturally. They are built into what happens when a group works to get something done together.Nor do all managers understand the contribution team work makes to company performance. They are consequently less willing to support in-depth programmes that help generate awareness of ethical considerations in a team setting. When a group harnesses effective team work people observe the values they care about in the actions and behaviours of their colleagues. There is the exchange of relevant feedback and a greater chance the ethical codes will make sense and be used as part of the team culture. Action No 3: Use team work and team development in an active way to build awareness of ethical codes and how team work can support people in following the ethical principles set out in the code.

Carney got it right

In suggesting our system cannot survive if ethics vanish from business, Carney was hardly exaggerating. Fortunately, he is not a lone voice and there are plenty of others making similar warnings and demanding change. However, there are practical steps which need to be taken to turn the aspirations contained in codes of ethics into practical tools for daily use. As I see it, the three obstacles and courses of action I have described all need tackling if codes are to stop being equivalent to propaganda, and start being absorbed as “how we do things round here”, —that is, part of the culture.[1] Guardian 28.5.14 Keith Edmonds is a long-serving Consultant at Coverdale Organisation Ltd with extensive experience of company development.

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